No Vat In Govt’S Vacation Rental Deal With Airbnb

The Minister of Tourism yesterday said he did not want to impose “too much regulation” on the vacation rental market, following the Government’s signing of a Memorandum of Understanding (MoU) with Airbnb.

Dionisio D’Aguilar told Tribune Business that the MoU requires Airbnb to collect all due taxes and fees associated with Bahamas-based vacation rentals listed on its website, and ensure those landlords are in full compliance with local rules and regulations.

However, he revealed that Airbnb will not collect Value-Added Tax (VAT) on the Government’s behalf because it was uncertain whether landlords were meeting the $100,000 annual revenue threshold that triggers registration.

As a result, Mr D’Aguilar suggested that the Government would have to look at introducing some kind of room/occupancy tax to capture vacation rentals.

This, though, would only be introduced with the 2018-2019 Budget at earliest, and the Minister of Tourism said landlords would likely be given a choice between paying VAT or this new tax to ensure there was no ‘double taxation’.

Mr D’Aguilar, who confirmed that he signed the Airbnb agreement while at Caribbean Tourism Week in New York last week, said the MoU would only become a full agreement once the new ‘vacation rental’ tax was implemented.

Describing Airbnb as “the largest and fastest-growing vacation rental website”, he told Tribune Business: “We at the Ministry of Tourism felt it was prudent to enter into a relationship to govern the terms by which people could rent their vacation homes in the Bahamas via their website.

“Airbnb will ensure that whoever lists their homes is in compliance with local rules and regulations, and collect any government taxes and fees associated with that rental, and remit that directly to the Public Treasury.”

Through the MoU, the Bahamas is following other Caribbean nations, such as Antigua and Barbuda and Bermuda, in enlisting Airbnb’s help to regulate the vacation rental and ensure it pays its ‘fair share’ in taxes to help with infrastructure upkeep.

The Government is thought to currently be missing out on significant tax revenues related to vacation rentals, given that payments to landlords are frequently made outside the Bahamas via the Internet, never touching this nation.

“There’s a lot of foreign second home owners in the Bahamas deciding to put their homes up for rental, and money is remitted directly to them outside the Bahamas,” the Minister of Tourism said. “You’ve got to tackle them through the website.”

Mr D’Aguilar, though, revealed that Airbnb “will not collect VAT” due to difficulties in determining whether landlord earnings breached the $100,000 registration threshold. As a result, he suggested the Government would have to introduce some kind of occupancy/room tax for the vacation rental sector in next year’s Budget.

“We don’t want to double tax someone, so we will probably give them the option of either paying VAT or the room tax,” he told Tribune Business. “It’s got to be the greater of the two.

Mr D’Aguilar, though, emphasised that the Government did not want to over-regulate vacation rentals, given the sector’s importance in fostering Bahamian entrepreneurship and spreading tourism-related income beyond the hotel industry.

“Airbnb and the products they offer are good for a number of reasons,” he added. “First of all, it attracts a different type of tourist from those types that go to hotels - certainly more so for New Providence.

“It also drives dollars that would typically not enter a particular neighbourhood into those areas by allowing visitors to go outside typical resort/hotel destinations.

“There’s a need for some oversight, but not a large amount. I don’t think they need too much oversight, and we definitely don’t want to do too much oversight.”

Mr D’Aguilar said Airbnb will also share its marketing information with the Ministry of Tourism. “What they’re going to do is share their information with us; all the people that rent, and give us statistics on the destination: How many people come, where they stay. They have incredible marketing information.”

The Government’s plans to regulate vacation rentals were also highlighted by the Prime Minister in an address to the Bahamas Hotel and Tourism Association (BHTA) yesterday.

“Vacation rental homes are today operating outside the regulated environment in our country,” Dr Hubert Minnis said. “Such products will have to be registered with the Ministry of Tourism and appropriate taxation will be applied to level the playing field and ensure they contribute to the public purse.

“Through registration we can ensure they meet international standards for service and quality.”

That, and Mr D’Aguilar’s comments, will likely be ‘music to the ears’ of Bahamian hotel industry executives, who have long demanded that the growing vacation rentals market be placed on a taxation and regulatory ‘level playing field’ with their properties.

The issue was raised at the BHTA’s February 2017 meeting, with its senior vice-president, Dean Spychalla, arguing that Harbour Island’s vacation rental industry was generating more income than the island’s hotels.

The meeting notes, obtained by Tribune Business, state: “Dean Spychalla reported that on Harbour Island, the revenue from the privately-owned homes exceeded that of all the hotels on Harbour Island.

“However, no monies are being collected by the Government for that revenue. In addition, these private homes take up seats on airlines flying to the island that the hotels need. Unless we can collect revenues and expand the infrastructure to get more flights in it is detrimental to the hotels.”

Mr Spychalla, though, acknowledged that restaurants and other businesses were benefiting from the private vacation rental market.

However, the Bahamas will have to be careful to strike the right balance, and not over-regulate the vacation rental market.

An Oxford Economics study for the Organisation for Responsible Governance (ORG) found that vacation rentals had the potential to increase Bahamian tourism industry ownership and develop Family Island economies.

Oxford Economics’ study, which analysed the impact of a 50 per cent increase upon current vacation rental activity, found this would grow stopover tourists by 8,350 annually, and generate $13 million in additional visitor spending.

Excluding 50 per cent of that $13 million from its analysis, as that represented lease costs, the ORG study said: “The full economic impact - direct, indirect, and induced - of additional spending by these new tourists is estimated at $9.8 million of additional GDP and 225 new jobs.

“The sectors most affected are community, social and personal services, which receives 35 per cent of the GDP impact and 50 per cent of the jobs impact, and hotels and restaurants, which receive 23 per cent of the GDP and 18 per cent of the jobs impact.”

Data obtained by Oxford Economics showed that the Bahamas had 1,878 properties registered with Airbnb, of which 908 - just under half - were deemed to be active.

Highlighting the vacation rental market’s growth and economic potential for the Bahamas, the ORG report showed these numbers were between eight to three times’ higher than comparable Airbnb data for Bermuda, the Cayman Islands and Turks & Caicos.

The Bahamas’ mean occupancy rate was lower than Bermuda’s and Cayman’s, at 38 per cent and 22 per cent, respectively, but higher than Turks & Caicos’s 16 per cent.

When it came to yield, the Bahamas’ mean Airbnb nightly rate of $306 was higher than Bermuda and Cayman’s, but lower than Turks & Caicos’s. This nation’s guest ratings were also in line with its regional rivals.

Comments

These type rentals can be/are something more unique to the Bahamas than other places. They are missing the entire point of a site like Airbnb and why it suits what tourism product we should be going after and not anchor hotels and cruise ships. You can rent just a room or even a couch in your house if you want to on Airbnb. Airbnb is self regulating with their host and guest review system. No need for the Ministry to get mixed up in it with government interference. It has great potential to allow Bahamians to participate in their number one industry. Yes some foreign home owners are making money off it as well but, they are paying property tax, stamp tax, duty, and VAT on every repair, upgrade, property manager, water, electricity etc that they consume and their guests are renting cars, eating out, and spending money. Allot of things like VAT, Duty, and Property tax are exempted from the hotels who have heads of agreements. So to suggest a free ride/ in even playing field is ridiculous. Many airbnb renters would never come to the Bahamas to stay in a hotel. They are a different type of tourist. Why just airbnb not vacation rental by owner and many other sites? The more well todo use those sites more than airbnb because, airbnb people are looking for experiences not big mansions and mega resorts. Do not kill a unique tourism product that allows our people one of the best opportunities ever to participate in our #1 industry that we have been shut out of for so long.

Yeah, it's kind of confusing why the government has to sign an MOU....Are they gonna sign one with amazon next? I suspect this will have the opposite effect than they expect, people will just use other mechanisms to attract guests. Likewise price increases will drive guests away from airbnb.

Airbnb is deriving millions of dollars annually from doing business with owners of short-term rental properties in the Bahamas. What exactly does our government get in return from Airbnb under the MoU to help defray at least a small part of the tax burden currently being borne by Bahamian taxpayers? Are we once again just giving away our collectively owned sun sand and sea?!

Many foreign homeowners have tried to pay the existing tax but simply cannot find anybody in authority to give it to. As for private homes for rental, Eleuthera is saturated with them and this is not fair to any legally licensed hotel which had to pay all sorts of fees to the government which adds to the cost of a room.